Advantage Data: Plunging oil and gas group leads junk market sectors to second straight loss; insurers inch upwards

By Paul Deckelman

New York, Dec. 15 – The woes of the beleaguered oil and natural gas exploration and production sector finally hit home last week, dragging the overall junk bond market to its second consecutive weekly loss and its fourth such downturn in the last five weeks, according to sector-tabulated weekly bond performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Out of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 57 finished in the red during the week ended Friday, with only one sector ending in the black.

That was a virtual repeat of the breakdown seen the week ended Dec. 5, when 56 sectors had posted losses for the week, just one showed a gain and one other sector was unchanged, showing neither a gain nor a loss.

The past two weeks’ oil-induced weakness stood in stark contrast to the results during the admittedly holiday-shortened week ended Nov. 28, when 50 sectors had ended in positive territory and just eight put up negative numbers.

A majority of the sectors have been on the plus side in 35 out of the 50 weeks so far this year, versus 15 weeks in which more sectors were down than up, although the negative weeks have been more numerous over the course of the last few months. At one point earlier in the year, from mid-March to early July, there had been a streak of 16 consecutive upside weeks.

A subset of just the 30 most significantly sized sectors, as measured by the number of bond issuers, the collective number of issues tracked and their total face amount outstanding, plunged for a second consecutive week along with the broader market.

Some 29 of those sectors closed in the red this past week, with only one sector in the black. This was a continuation of the pattern of weakness seen the week before, when all 30 of those sectors had been negative.

The week before that, however, 27 of those sectors had ended on the upside, with just three finishing lower.

That more-focused grouping generally moves up or down in tandem with the overall market, although from time to time there is a rare divergence, as happened during the week ended Nov. 14, when a small majority of the larger sectors finished higher on the week, even though the overall sector breakdown was negative, and during the week ended March 7, when most of those key sectors were down on the week while the overall sector roster showed more gains than losses.

Between those two points, the results had mirrored those of the broader market.

On a year-to-date basis, those significantly-sized sectors have now mostly shown gains in 35 weeks out of 50 since the start of the year, versus 15 downturns, the same as the broader market.

In the latest week, the energy E&P sector decisively led the market lower, as investors continued to react negatively to falling world crude oil prices amid oversupply concerns, slowing demand and the failure of the OPEC ministers to cut their countries’ petroleum production to prop up prices.

Insurance carriers posted a tiny gain on the week – the sole upside move in the whole market.

For the year-to-date so far, paper manufacturers stayed on top, while coal mining continued as the year-to-date cellar-dweller.

Index slides badly

Other statistical indicators of general market performance meanwhile spent a second consecutive week ending lower across the board versus where they had been the week before.

The Merrill Lynch High Yield Master II index led the way downward, nosediving by 2.094% on the week – its largest weekly decline so far this year this year, eclipsing the 1.419% plunge recorded during the week ended Aug. 1, and one of the biggest weekly downturns on record.

This followed the already harsh 0.957% loss seen during the week ended Dec. 5. The index last rose during the week ended Nov. 28, when it was up by 0.022%.

The index has now seen 33 weekly gains in 2014, against 17 losses, including a winning streak of 14 straight weekly advances that started during the week ended March 21 but which was snapped during the week ended June 27.

As of Friday, its year-to-date return had fallen to 0.847%, marking its first time under the psychologically significant 1% mark since Feb. 7, when it had closed at 0.989%. Friday’s close was its weakest since Feb. 6, when it stood at 0.810%. It was down from a 3.003% return the week before and well down from its peak level for the year of 5.847%, recorded on Sept. 1.

Among the index’s other components, Friday’s yield to worst stood at 7.006%, its highest level of the year, up from the previous week’s 6.40%. It broke through the previous highest yield for the year so far of 6.839%, set on Thursday. Those elevated yields stood in contrast to the 4.847% recorded on June 24, which was both its low point for this year and its all-time low.

The spread to worst over comparable Treasury issues stood at 554 basis points on Friday, up from 486 bps the week before and from 533 bps on Thursday, its previous wide level. It continued to widen the gap over the 353bps seen on June 23, its tightest spread for the year to date.

Energy angst dominates market

Back on a sector-by-sector basis, Advantage Data showed the oil & gas E&P sector (down 5.25%) clearly doing the worst among any significantly-sized sector.

It was the oilers’ seventh consecutive week among the worst finishers as the sector lost 2.52% the week before, and it was the second time in three weeks that they had the biggest loss.

Other major sectors showing particular weakness during the overall negative week included coal mining (down 4.58%), lodging (down 2.65%), telecommunications (down 2.15%) and primary metals processing (down 2.05%).

It was coal’s fourth straight week among the worst-performing large-sized sectors. It had also been there the week before, when it had led all of the underachievers with a 4.10% loss, its second time in three weeks at the absolute bottom of the shaft.

The primary metals processors were among the Bottom Five for a second straight week, having also landed there the week before with a 1.15% loss.

There was not really much of an upside. Alone among all of the sectors, large or small, insurance carriers edged their way into positive territory with a 0.01% gain.

Real estate also showed relative strength, declining just 0.19%.

Paper manufacturing (down 0.49%), transportation equipment manufacturing (down 0.72%) and industrial machinery and computer manufacturing (down 0.78%) rounded out the week’s Top Five list of the better-performing sectors, relatively speaking.

Both paper manufacturing and transportation equipment manufacturing had been there the week before, when they posted losses of 0.01% and 0.13%, respectively. The papermakers had thus been the week’s best finisher, in relative terms.

Papermakers tops year-to-date

With 50 weeks in the books for 2014 so far, the paper manufacturing sector held its usual position as the dominant large sector year to date, with a 9.02% cumulative gain. It was the papermakers’ third straight week in the top spot, and the group’s ninth week there in the last 10 and 12th week there in the last 15.

Real estate (up 8.01%) moved up by one position to the runner-up spot from third place the week before.

Printing and publishing (up 7.28%) also moved up by one position, to third best, after having been just fourth strongest in four weeks out of the previous five.

Depository financial institutions (up 6.89%) lost two places in the standings, moving down to just fourth best from second best the week before.

Insurance carriers (up 6.15%) moved up to fifth best on the year despite not having been among the leaders the week before.

Coal at the bottom

On the downside, coal mining (down 8.27%) was the worst cumulative performer for a second straight week and has now held that bottom position in nine weeks out of the previous 18, alternating with lodging during that time.

Metals mining (down 5.07%) fell to second worst after having only been third worst for eight successive weeks.

Lodging (down 4.80%) improved, relatively speaking, rising by one notch to just third worst, after having been the second worst finisher the week before. Over the previous 17 weeks, it was the worst year-to-date performer nine times, alternating with coal, and was second worst eight times during that stretch.

Other sectors bringing up the rear for the year included the oil and gas E&P segment – the week’s worst performer, as noted – which was fourth worst year to date for a sixth straight week with a 3.56% loss.

Holding companies and other investment offices (up a meager 0.45%) was the fifth-worst sector for a second straight week.

© 2015 Prospect News.
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